Smart?

One close student of the downtown condo market, asking not to be identified because of pending litigation, says, “The market is slow for good buildings, but certainly not disastrous.” A “good” building is defined as well built, with adequate parking, in a good location — “meaning not too many surrounding aggravations,” including homeless encampments, freeway or train noise, or the Gaslamp’s all-night partying.

But it’s a disastrous market for bad buildings, says this source. “Bad” means poor construction or poor location. Says this person, “Smart Corner is also a bad location because the [City College] trolley stop causes noise to be trapped between the two buildings and there are undesirables who hang around there at all hours.”

“We’ve tested the trolley noise, and it’s absolutely negligible,” says Harmer, who admits the neighborhood isn’t the greatest. “We have a full security system. There have been zero reports of violence. Things that have turned people off are a burned-out building in the area and some other issues. This is an emerging area; it’s not the marina district, but we don’t charge marina prices. There is an enormous commitment to revitalize the area.”

Rooks says the access to public transportation enhances the commission’s ability to serve clients. “We serve a lot of elderly people, persons with disabilities,” she says. She and Harmer are still committed to smart growth. And Smart Corner. Time will tell if that’s smart.

What a mess. So out of 301 condos, only 49 are sold and 19 in escrow but Harmer says "its not a disaster." Yeah everyone loves the homeless people in front of their condo, that's a big plus. This is why the government should not get directly involved with RE development.

In places like SF, Boston, NY having a trolley out front is a big plus since everyone takes public transportation. In SD where everyone drives and the trolley has a very limited range, it provides a negative instead of a positive.

Response to post #2: I lived in Cleveland for seven years. Back then (1966-73) it was said that neighborhoods near the rapid transit running through upscale Shaker Heights (called "The Shaker Rapid") enjoyed better real estate markets than neighborhoods not within walking district. In Cleveland, taking transit was a habit; almost everybody did it. Ditto Chicago when I lived there. I am a believer in transit. The more San Diego builds expressways, the more crowded they get. But it takes education to convince the populace. The Smart Corner's main problem, I believe, is the very bad downtown condo market. The neighborhood doesn't help, but that will change. Best, Don Bauder

Real estate goes in cycles. We are in a serious downturn, and it will stay that way for 2-3, maybe even 5 years, and then it will boom again. So it is a smart move to rent the units out.

Back in the last severe downturn, 90-96, the condos downtown (not many) and commercial space on market dropped like crazy. A good example was the Palladian indoor shopping mall right across the west (bayside) side of Horton Plaza-built for $37 million. Completed in 92 and promptly went BK, was sold by the bank for $7 million dollars in 94.

But, if you could hang on and could ride out the bad times you were OK.

Example, the owner of the condos right across from the Convention Center (and Market Street-3 story brick facade) had a 50% equity stake in his property, and did not lose it to the bank. He cold not sell them so he rented out the units, and when the market turned 8 years later in 2001 he converted them back to condos- and made a fortune.

Response to post #6: Sure hope everyone in San Diego has five years of spare liquidity in buckets to ride out the "downturn" until the "boom" returns. And that we still have police and fire departments at the end of the 5 years.

Response to post #6: Good point. If you can afford to hold on, your investment might pay off. One problem with that strategy is that San Diego home prices zoomed so high -- including downtown condos -- that the price plunge, already near 20 percent, could go much further, making recovery more difficult. Another problem is the high rate of foreclosures now. Downtown condo owners who foreclose are not paying their homeowners association dues. Those have to be paid by other residents -- adding further strain to the shaky market. Best, Don Bauder

Response to post #7: You also make good points. With the City in such financial turmoil, will there be sufficient police and fire services downtown? Will retailers spring up, especially since a high percentage of the owners are part-time residents? Downtown condos are basically a good idea, but the boom got out of hand and is now deflating. Best, Don Bauder

Drove by "Smart Corner" this morning, it looks like "Dumb Corner" now that I read your column, another concrete monument blight on the San Diego landscape now.

But the really bad joke is on the people of San Diego who are screwed again by the Davies/U-T/Sanders Greed Machine ad infinitum as long as the corrupt courts keep trashing the rule of law with hellaciously destructive impunity.

7.

Response to post #6: Sure hope everyone in San Diego has five years of spare liquidity in buckets to ride out the "downturn" until the "boom" returns.

You just identified the major problem, no one has the equity in their properties to ride out the bad times, because of the non-existant underwriting standards the lenders were using.

85% of the loans in 2003-2006 were to unqualified buyers with little-IF ANY- money as a down payment. Since the feds allow mortgages to be bundled and then sold on the market as mortgage backed securities there was no incentive for lenders to provide good, quality loans. The lender would wash their hands of the bad loans as soon as the ink was dry-unloading the bad loans on the market and unsuspecting investors. Many of those investors were hedge and equity funds who are now really getting their clock cleaned on them.

In the old days saving and loans would make a mortgage/trust deed and then they would keep the loan and service it themselves-so they had good reason/incentive to make sure the borrowers were credit worthy.

I have said it before and will say it again, this real estate market was not created by jobs-which virtually every other real estate boom was created by. It was created by low interest rates from 99-2002/3, and from 2002-2006 it was maintained by bad loans, loans with no underwriting criteria to qualify buyers.

That is a recipe for disaster.

Greenspan deserves much of the blame, and so do bank regulators for allowing the underwriting of the bad loans. Now we have a credit crunch that is causing harm that is 100 times worse than the benefits the bubble created.

Response to post #14: Excellent observations. The fact that the lender would make the loan and quickly sell it off to a faceless entity on Wall Street is greatly responsible for America's deep woes. Nobody took responsibility for the loan: 1. To make sure it was written for someone who could afford it; 2. To monitor the progress of the mortgage if the borrower fell behind. Keep in mind, too, that much of the downtown condo bubble was created by government. It was a result of the ballpark vote of 1998. John Moores promised to build hotels whose T.O.T. taxes would pay for bond debt service. He was also going to make sure a few other buildings were built. But at the last minute, he got council's permission to change the mix. He didn't provide the hotels. He sold land at a fat price that he had got for cheap early 1990s prices. Condo developers paid dearly for that land and then built and sold the condos into a bubble. Moores got a great return on his money and ran. Mainly condos were built -- vastly overbuilt. Government plans often go sadly awry when market forces aren't considered. The ballpark only contributed to some condos being built in a small area in the ballpark district. They are ones with the highest vacancy rates. The very low interest rates really touched off the condo boom over a wide portion of downtown, including Little Italy. Those interest rates, too, were artificial. So you had two artificial forces. Best, Don Bauder

Response to post #15: Yes, it just came across the wire today that for the first time since 1945, Americans have equity of less than 50 percent in their homes. And home prices will go down further -- a lot further. And in San Diego, a VERY lot further. Best, Don Bauder

Isn't it odd how all these city agencies, or city government and non-profit work together so well for each others benefit. Also that somehow all these home loans that are so easy to get cannot be gotten by some, and also that the affordable housing that is supposed to be being built is not so affordable.

Response to post #19: You make excellent points. The housing commission's building is tied economically to the success of the condo tower. One of the commission's primary missions is affordable housing. Yet the condo tower to which the commission is tied has only 25 units out of 301 set aside for affordable housing. Best, Don Bauder